DAOs 2.0: What’s Next For Decentralized Governance?

Decentralized Autonomous Organizations (DAOs) have epitomized crypto's boldest dreams: radical decentralization, community-driven innovation, and a wholesale rejection of traditional corporate power structures.

Yet even the most daring revolutions often find their way back to familiar territory. Consider the Oneida Community, an audacious 19th-century experiment nestled in the idyllic landscapes of upstate New York. Founded by the charismatic John Humphrey Noyes, this utopian group fervently rejected private property, engaged in controversial communal "complex marriage" (something akin to a swingers’ colony), and sought spiritual perfection through collective decision-making. With its libertarian spirit and unapologetic pursuit of pleasure, Oneida mirrored the unbridled, anarchic enthusiasm seen in early crypto culture.

But idealism has its limits. As the community swelled in numbers and ambition, it became ensnared in internal conflicts, tangled in legal troubles, and targeted by societal outrage. Faced with existential threats, Oneida evolved into something more structured and pragmatic: the Oneida Community Ltd., a corporate entity recognized today for its elegant silverware. Though this transition traded some of its revolutionary zeal for stability, the shift provided clarity, legal coherence, and sustainability—critical ingredients for lasting success.

As an attorney advising blockchain enterprises since 2016, I've observed a strikingly similar evolution firsthand. Initially, DAOs promised to eliminate traditional corporate structures, passionately advocating for total decentralization. Yet, much like Oneida, as these ventures expanded and integrated into broader economic systems and practical use cases, purely decentralized governance encountered scalability issues, inefficiencies, and legal complexities. This inevitable shift towards structured governance doesn’t abandon crypto’s foundational principles; instead, it represents necessary adaptation and maturation.

This evolution is especially critical as blockchain technology becomes increasingly intertwined with broader economic and social systems. As crypto becomes a significant part of everyday finance, supply chains, digital identity systems, and even national infrastructure projects, the demand for predictable, legally compliant, and clearly structured governance has intensified.The industry needs to balance these ideals with the structured frameworks necessary to function effectively within complex societal contexts.

Blockchain’s core features such as transparent, token-based decision-making, incentivized community participation, and immutable governance records are not just worth preserving; they offer distinct competitive advantages when thoughtfully integrated into structured governance models.

These attributes can strengthen trust, foster engagement, and enhance resilience, but their full potential is realized only when combined with clear accountability, defined roles and legal coherence. The key is not choosing between decentralization and structure, but finding balance that empowers community-driven innovation while ensuring the project can scale, remain compliant, and operate sustainably.

MakerDAO’s example

Recent developments within MakerDAO (now rebranded as “Sky”) highlight how centralization can emerge even in projects that initially exemplified DAO ideals. Despite Maker’s historic role as a model for Defi, concerns have grown over the increasing consolidation of power within a small group of leaders and delegates, particularly following the somewhat controversial approval of the Sky rebrand.

Critics argue that the protocol’s voting power has become highly concentrated, undermining the principle of collective decision-making. These shifts reveal how operational complexity, voter apathy, and technocratic control can gradually erode decentralization from within, making structured and hierarchical governance not just necessary for transparency and sustainability but perhaps inevitable.

Like Sky, many DAOs already operate with significant centralization and fractious stakeholders. The challenge now is to acknowledge this reality and design structures that balance community input with accountable, effective leadership.

Encountering similar difficulties with centralized voting and raucous small holders, Yuga Labs, creators of the renowned Bored Ape Yacht Club, recently proposed dismantling its ApeCoin DAO due to operational inefficiencies, voter disengagement, and governance challenges. CEO Greg Solano described ApeCoin DAO’s governance as "sluggish, noisy, and often unserious," advocating instead for a structured corporate model, ApeCo, to provide clearer accountability and streamlined decision-making.

ApeCo maintains participatory token governance but situates it within a clearer corporate framework, echoing how Oneida retained aspects of its cooperative ideals within a structured legal entity.

Decentraland, which also initially championed pure decentralized governance, faced similar issues such as voter fatigue, declining participation, and power concentration among early adopters. Recently, its community has actively explored governance reforms, including the formation of governance councils and executive committees, preserving transparency and community participation while ensuring clear, efficient governance.

There is ambiguity around the legal status of DAOs regarding securities regulation, fiduciary duties and liability. Clearer legal frameworks and ongoing guidance from the SEC and EU regulators such as the SEC’s statement on protocol staking or the EU’s MiCA (Markets in Crypto-Assets) are increasingly being embraced by blockchain projects. Such frameworks offer much-needed legal certainty, reduce compliance risks, and build greater trust among mainstream stakeholders.

Crypto’s evolution toward structured governance parallels Oneida’s transition. Effective governance and clear accountability are crucial for sustainable success and broad acceptance. While decentralized elements remain essential, beneficial, and distinctive, the integration of structured governance models better positions blockchain enterprises for stability, scalability, and broader societal integration.

The shift towards more structured governance in crypto, much like Oneida’s adaptation, represents essential progress toward practical sustainability. Rather than abandoning blockchain’s core ideals, it ensures the continued relevance, resilience, and effectiveness of these revolutionary technologies within complex economic and societal contexts.

Read more: Is There a Future for DAOs?